January 30, 2007
Katherine Baicker: President’s Health Care Tax Initiative Would Eliminate Inequities
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WASHINGTON, D.C. - Tax deductions for health insurance would even out inequities in the tax code and help drive down costs, according to a member of President Bush's Council of Economic Advisers.
"The current system...has these biases built in," said Katherine Baicker, a member of the CEA since 2005, whose research areas include health economics. "People who get insurance through their jobs get a tax subsidy," but those who pay for private insurance do not get the tax break, she explained.
The President's plan, she said, seeks to "level the playing field" by allowing those who pay for private insurance on their own to receive the same tax advantage as those who claim health insurance through their employers.
Dr. Baicker explained the details of the President's initiative in the Tax Foundation's most recent Tax Policy Podcast (listen).
"Part of the reason that health care costs are spiraling out of control is that the tax code is pushing people into insurance policies that increasingly cover care of marginal value," Baicker explained. "If that bias weren't there, people would be shopping around for the highest value plans for them."
The plan eliminates the exclusion of employer-provided health insurance from income and replaces it with a standard tax deduction--$15,000 for family and $7,500 for individual--available to anyone who has health insurance. In order to reach some of the uninsured who pay no federal income taxes, the plan calls for taking the deduction against payroll taxes--which include Social Security and Medicare taxes. This provision has some concerned that short-term payroll tax relief will ultimately lead to a long-term reduction in Social Security benefits at retirement - though the effect is unclear.
"Some people would indeed be paying less into the...Social Security system because they would be getting to take more of their compensation tax-free," she acknowledged, but then added, "This in no way harms the solvency of the Social Security System. In fact, it improves the solvency of the Social Security system in the long run."
The interview is Number 20 in the Tax Foundation's podcast series. It's available online here.
The Tax Policy Podcast features an interview that sheds light on the nation's tax system. Best known for its annual calculation of Tax Freedom Day®, the Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
Listen | All Podcasts | Transcript
See also: Illustration of the President's Health Care Tax Initiative
